The benefit of carrying out documentary transactions through Volksbank is particularly the bank’s individual approach to each client, speedy processing and the know-how of a major European finance group.

Documentary payments:

Documentary collection:

Assets-based financing:

Off-balance sheet financing:

Export financing:

Basic classification of documentary transactions

Documentary payments

  • Issue
  • Advice
  • Confirmation of a documentary L/C
    • A documentary L/C is a bank’s obligation to pay the seller a certain amount of money on condition that the bank is presented by a prescribed date required documents proving the dispatch of goods or performance of services (alternatively a certificate of quality, quantity, origin and title to the goods)
    • An L/C is usually irrevocable and cannot be unilaterally cancelled

Documentary collection

  • A safe payment instrument that is used in trade to collect payments for exports or pay for imports
  • By documentary collection the bank collects an amount payable from the buyer against certain documents or acceptance of a bill

Assets-based financing

Pre-export financing

Financing of production and inventories on the basis of a binding supply agreement (secured by the future account receivable or a documentary L/C).

Example: The debtor has a binding agreement for the supply of goods to be manufactured within 6 months. The procurement of material and the manufacture of goods is financed by bank credit. The credit will be paid off out of the proceeds from the invoiced delivery as soon as the delivery has been carried out.

Accounts receivable financing

The most important aspect considered in financing an account with deferred maturity is its quality. The debtor must acknowledge his accounts payable. The accounts to be financed are usually a substantial part of the debtor’s sales. The product serves the creditor, who can’t procure financing on his own.

Example: An exporter is to deliver his goods to be paid within 90 days. To help him bridge the time until the final payment, the bank provides financing secured by the collection of the debt.

Inventory financing

Credit is secured by a binding contract for delivery of goods or by liquid commodity with clear title or buyback guarantee.

Example: A supplier has a binding agreement for delivery of goods within 6 months. To be able to honour this obligation, he needs to procure inventories beforehand. Cash to purchase them will be covered by credit, which will be repaid out of the proceeds from the invoice. The credit is strictly linked to and secured by either the inventories or the debt arising from the delivery.

Off-balance sheet financing

Forfeiting (purchasing of secured accounts receivable)

Purchasing of a bill of exchange or deferred-payment documentary L/C. A B/E must be issued or endorsed by avalisation by a subject with an acceptable credit risk. A deferred-payment documentary L/C must be issued and confirmed by an acceptable counter-party.

Example: An exporter has carried out his delivery. Payment is by an L/C with 120-day deferred maturity. This period can be bridged by selling the documentary L/C to a forfeiter, who will pay the recipient a discounted amount of the L/C immediately. The forfeiter will be paid on the due date of the L/C.

Factoring (purchasing of accounts receivable/with recourse, without recourse/)

Discounting of a confirmed account receivable.

Example: As in the case of financing an account receivable, accounts receivable with longer maturity periods need bridging. Purchasing outstanding receivables as a means of financing can be used in cases when the importer doesn’t want to keep an account receivable till the due date and use credit, or when the financing bank doesn’t want to enter into a mutual credit relationship with the exporter (e.g. because of an outstanding bankruptcy suit), nevertheless, it takes on the credit risk of the debtor to pay the account.

Export financing

Supplier credit

A means of long-term funding of exporters. The repayment of a debt is secured by the receipts under the export agreement. Political and business risks of credit need to be covered by ECA insurance ECA (e.g. EGAP).

Example: A manufacturer has completed its job. The buyer is short of sufficient funds to pay with after the delivery, however it could repay the respective amount in several instalments, from its operating revenues. The exporter’s deferred receipts are bridged by a loan secured by the account receivable. The credit is repaid out of the proceeds from individual receivables. The form of repayments can vary, e.g. a documentary L/C or a B/E.

Customer credit

A means of long-term funding of a foreign importer or its bank. Transactions are mainly to do with goods supplied by local exporters. Political and business risks of credit need to be covered by ECA insurance ECA (e.g. EGAP).

Example: As in the case of supplier credit, the ability to pay for a delivery immediately is questionable. An exporter who doesn’t want to finance long-term receivables out of its credit arranges funding for the importer with its domestic bank. The importer pays the exporter at delivery and repays the credit out of its own operating revenues /resources.

Other risk products

Issuing of performance bonds, down payment guarantees, etc.

Example: An exporter provides for its customer a 5-year warranty period. To cover the risk of possible failure to honour its warranty obligations, the exporter provides a bank guarantee normally amounting to 5-10% of the delivery price.